Self-paced
Tony: A new kind of videocassette has just been developed. ██ █████ ███ ████ ████ ██ ████ ████████ ██ ███ ███ ████ ████ ███ █████ █ █████ ██ █████ ██████████ █████ ██████ ██████ █████ ████ ██ █████████████ ████ ██████████ ██ ████████ ███ █████ ██████ ████████ ██ ███ ███ ████ ██ █████████████ ████ ██ ███ ███ █████
█████ ███ ███ █████████████ ██████ ████ ████████ ███ █ ███████ ██ ███ █████ █ █████ ██████ █████ ████ ██ ███ █ ████ ██ █ █████ ██ ██████ ████ ██ ███ █████ ████████ ██ █████████ ███ █████ ████ ██ ███ ██████ ████ ████████ ███ ██████ ██ ███ █████ ████ █████ ██████ ██████ ███ ███ ████ █████ ████████ ██ ████████████ ████ ████ █ ████████ ███ █████████ █████ ████ ██ ██ ████ ██ ██████████ ███████
Summary
Tony argues that video rental stores should switch to a new, cheaper videocassette. The new cassette costs a third as much as the old kind but only lasts half as many viewings. In Tony's mind, this is still a good deal: you're paying a third of the price and getting half the life, so the cost per viewing goes down.
Anna's response is that Tony is focused on the wrong number. The cassette itself is only 5 percent of what a store pays for a copy of a movie. The rest is royalties to the studio. So even if the cassette portion drops by two-thirds, that savings applies to just 5 percent of the total price. The overall cost per copy barely moves. And since the new cassettes wear out faster, stores would need to buy replacement copies sooner, which means paying those royalties again.
24.
Which one of the following, ██ █████ █████ ██████████ ████ ██ █ ███████ ██ ██████ ████████ ███████ ██████ ██████
a
The price that █████ ██████ ██████ ███ ███ ██████ ████████ ██ ██████████████ ██ ████████████ ████ ████ ███ ██████ █████ ██ █████ ███████
Whether stores pay less than the retail price doesn't matter. Anna's point is about the internal breakdown of whatever price stores pay: 5 percent cassette, 95 percent royalties.
b
A significant proportion ██ ███ ██████ ██ █████████████ █████████ ██ █████ ██████ ██████ ███ ██████ ██ ████████████ ███ ████████ ██████ ██ ██████ ███ ██████ ███████ ████ ██ ██████
This tells us stores are already buying lots of replacement copies for worn-out movies. But it doesn't change the cost breakdown Anna identified. Each replacement still comes with full royalties, and the new cassettes would need replacing even more often. If anything, the higher replacement rate makes Anna's concern about paying royalties on additional copies more pressing, not less.
c
The royalty fee ████████ ██ ███ █████ ████ █████ ██████ ██████ ███ ███ ██████ ██ ███ ███ ████ ██ █████████████ ████ ██ ████ ████ ████████ ██ ███ █████ ██ ██████ ██ ███ ███ █████
This goes straight at the foundation of Anna's objection. Anna's argument depends on royalties staying the same, since they make up 95 percent of the per-copy price. If royalties on the new cassettes are cut in half, the total per-copy price drops dramatically. The savings would no longer be confined to the small cassette portion. A store replacing a worn-out copy would pay half the royalties and a third of the cassette cost, which is a fundamentally different picture from the one Anna painted.
d
Given a choice, █████████ ███ ████ ██████ ██ ███ █ █████ ██ █████████████ ████ ██ ████ ██ ██ ███ ██████ ███ ██ ████ ████ ████ ██ ███ ████████ ██████
This is about customer purchasing behavior, not about what rental stores pay for inventory. Whether customers prefer to buy rather than rent at a certain price point doesn't address the cost structure Anna raised or help Tony's case that the new cassettes are more economical for stores.
e
Many of the ██████ ██████ ████ █████ ██████ ███████ ████████████ ██████████ ███████ ███████ ███████ ████████ ███ ██████ ████
This tells us some movies, especially children's movies, get watched many times per rental. That means those cassettes wear out faster, which would actually reinforce Anna's concern: the new cassettes would need replacing even sooner for heavily watched titles, generating more royalty payments.